It would be foolish to suggest there is no uncertainty in the UK property market however an annual increase in house prices to the year end March 2017 is not the doom and gloom scenario many had predicted. The figures from the Office for National Statistics (ONS) show a reduction from February’s year-on-year growth of 5.6% down to 4.1% but when you bear in mind we are in the midst of a general election, never mind Brexit, this is not exactly unexpected?
London house prices
Despite the fact that London still has the highest average house price in the UK, at £472,000, the year to end March 2017 figure shows the second lowest house price growth in the UK at just 1.5%. There seems to be a growing indication that central London prices are under far more pressure than outer London prices. We all know the London housing market, and the property market in general, are effectively separate from the rest of the UK in the way it moves and the affordability factor. Is this perhaps the first sign of concerns about areas of the London financial market relocating to Europe after the Brexit deal has been done?
It is difficult to say what may happen to the London financial markets in light of Brexit because London was still extremely strong before the European Union grew ever closer. Will EU laws and restrictions on those operating from out with Europe force financial institutions to relocate from London?
House price performance across the UK
Despite the fact there had been increased interest in the North-East of England housing market in the year to March 2017 prices actually fell by 0.4%. This was the lowest annual growth rate across the UK and comes despite the fact some properties are offering double-digit rental yields. On the flipside of the coin the East of England and the East Midlands registered the highest annual growth rate at 6.7%. This was very closely followed by the West Midlands where house prices increased by 6.5% over the 12 month period.
It is quite surprising to see a lack of interest in North-East of England property as there have been signs that investors are looking further afield than the traditional London and Southern markets. This may well be a short-term dip in light of the political situation at the moment but time will tell.
The affordability factor is becoming a concern for those looking to climb onto the UK property ladder. We have inflation at 2.7%, wage inflation running under 2% and property prices up by 4.1% in the year to March 2017. So in real terms house prices are increasing by 1.4% per annum while inflation is eating into the real value of wages and as a consequence their associated buying power. The Bank of England is not overly concerned about this spike in inflation which would suggest it could be a short-term issue as markets come to terms with the Brexit situation.
There are so many different factors coming into play with the UK housing market that it is difficult to forecast with any real confidence how the future may pan out. We have a relatively low currency exchange rate attracting overseas buyers, rising inflation, low wage inflation and an increase in house prices, even if the rate is beginning to slow. Experts are divided upon how the UK property market will perform in the short, medium and longer term although it has to be said there is more confidence in the longer term with the UK outside of the European Union.